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Thursday, April 12, 2012

Facebook Buys Instagram

Story first appeared in The Detroit Free Press.

Facebook, the biggest social-networking service, is buying the Instagram mobile photo-sharing application for about $1 billion in cash and stock, using its biggest acquisition yet to attract users of mobile devices.

Instagram, owned by San Francisco-based Burbn, was valued at $500 million after raising about $60 million last week from investors including Sequoia Capital, said people with knowledge of the funding who asked not to be identified because the matter is private. The transaction is expected to close this quarter, Menlo Park, Calif.-based Facebook said Monday.

Instagram, the most popular free photo-sharing application on Apple's App Store, boasts more than 30 million users. Owning it may help Facebook in its effort to attract handset users and advertisers who target them.

In order to monetize mobile, Facebook needs a lot more mobile participation.  What they bought with Instagram was a photo app with high brand recognition and an enormous audience.

The deal marks the first time Facebook has acquired a product and company with so many users, Facebook CEO wrote on his profile page. The company also announced the transaction on its website.

Facebook, which intends to raise $5 billion in the biggest initial public offering of an Internet company, says it plans to let Instagram remain independent.  By remaining independent, Instagram will be allowed to keep and build on their strengths and features rather than integrating everything into Facebook.

Instagram was introduced in October 2010. Building on its popularity among iPhone users, last week the company added an application for Google's Android operating system.

Instagram received seed funding of about $500,000 from two major donors in 2010. It raised a $7-million round in 2011, when it had 1.75 million users, from Benchmark Capital and a group of angel investors including Twitter and Quora executives.

The startup closed its most recent financing just days before Facebook's purchase was announced, the people with knowledge of the matter said.

The purchase extends the role of Apple's App Store as a platform for building companies, said an analyst at Yankee Group. It may also be the largest purchase price for an app built for the App Store.

Marketers including Nike, Tiffany and Burberry have begun using Instagram to promote products using photos. Gap's Banana Republic unit held a contest on the site asking users to submit pictures of their New Year's Eve outfits for a chance to win a trip to New York City.

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